HONG KONG - Hong Kong’s private sector economy contracted at a faster pace in August led by sharper declines in output and new orders amid increasingly stringent social distancing restrictions, an IHS Markit survey showed on Thursday.
The seasonally adjusted IHS Markit Hong Kong Purchasing Managers’ Index (PMI) fell to 44 in August from 44.5 in July. A level below 50 indicates a decline in private sector business activities.
IHS Markit principal economist Bernard Aw said business activity and new orders both fell at steeper rates in August, adding to concerns about the depth of the economic downturn during the third quarter.
With unused capacity persisting across the private sector, the labor market is set to remain subdued in the coming months.
Bernard Aw, IHS Markit principal economist
Particularly, business activity shrank substantially during August, dropping at the fastest pace since the peak impact of the initial lockdown measures from February to April, the survey showed.
“With unused capacity persisting across the private sector, the labor market is set to remain subdued in the coming months," Aw said.
Samuel Tse Ka-hei, economist at DBS Bank Hong Kong expected the city’s unemployment rate to go up in August as more companies shut down their business and laid off employees.
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In the May to July quarter, government data showed that Hong Kong’s unemployment rate fell 0.1 percentage point from a 15-year-high to 6.1 percent, ending nine consecutive months of increases.
“If there’s no fourth or fifth wave of COVID-19 outbreak, the employment situation should be stabilized in the fourth quarter,” Tse said.
Business confidence remained deeply negative in August, with firms highlighting concerns about the ongoing pandemic-related restrictions, US-China trade tensions, cautious consumer behavior, business closures and suspended projects, the survey showed.
As Hong Kong battled the third wave of coronavirus infections, the SAR government tightened social distancing rules in July to curb the transmission.
After almost two months when the daily confirmed coronavirus infection cases dropped to around a dozen, the HKSAR government started to relax the social distancing rules.
Tse said as the peak of the pandemic in Hong Kong flattens and social distancing rules are eased, the catering sector will rebound and the consumer sentiment will gradually pick up.
However, as over 30 percent of retail income comes from tourists, Tse noted that if the border cannot be opened, the city’s retail sector will continue to feel a severe impact.
To look ahead, confidence remained negative as firms expressed worries over not just tighter COVID-19 measures, but also a renewed US-China trade war dispute, increasingly cautious consumer behaviour, and business insolvency, according to Aw.
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Tse estimated that Hong Kong’s GDP may contract 7 percent in the entire 2020. Even if the COVID-19 situation is stabilized, it still takes time for the economy to get back to the normal track, he said.
Gary Ng, an economist at French investment bank Natixis, expected Hong Kong’s PMI to remain in the contraction zone for the rest of the year due to weak performance of the external economy. He added that the pandemic has hit the city’s service industry hard and the city’s unemployment rate is likely to reach 7 percent without government relief measures.
